Best Practices

Making The Difference

In Shared Service
Management
By Dr. Daniel Stock, Senior Manager, Dr. Florian
Meister, Geschäftsführer at Strategic Service Con-
sulting GmbH, Germany, Dr. Alexander Becker,
Geschäftsführer PMCS.helpLine Software Gruppe
and Burkhard Franz, Leiter Service Management
bei Lufthansa Global Business Services GmbH,
Germany

THIS PAPER WAS PUBLISHED FIRST IN THE OUTSOURCING JOURNAL

SPECIAL EDITION “NEARSHORING EUROPE” Q4/15,
download the edition (pdf, 150 pages) free at
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 SHARED SERVICES MANAGEMENT

S
hared service centers typi- into the service center organiza-
cally face numerous chal- tions, which are usually facing
lenges in delivering the numerous challenges with this
associated business cases. This if service management is not set
article discusses 10 success fac- up and structured effectively.
tors towards an effective service This article will discuss 10 suc-
management that realizes busi- cess factors in service manage-
ness value for organizations. ment that stem from hands-on
project and day-to-day business
experience.
Introduction While a review along these 10
aspects provides a good over-
Shared services remains a prio-
view on the current state of an
rity across organizations in or-
organization, you need to con-
der to transform their operating
sider organizational context to
models and benefit from global
derive the right priorities going
economics. This is by increa-
forward. The article closes with
sing the level of consolidation,
outlaying 4 likely steps for or-
expanding the service scope,
ganizations in their journey to-
or shifting operations from de-
wards effective service manage-
veloped to emerging markets.
ment.
Most organizations chose a “lift
and shift” approach for this tran-
sition to either avoid the com-
plexity of a big bang or minimize
the change management efforts
on the operational side.

However, this approach also im-

plies that the responsibility for
the business case also transitions

The Outsourcing Journal “NEARSHORING EUROPE EDITION Q4/15” All rights reserved. Page 2
SHARED SERVICES MANAGEMENT
Making the difference
Service management is a com-
plex system that spans a varie-
ty of highly interlinked proces-
ses across many stakeholders.
In general, this includes firstly
a sales function that owns the
customer relationship and ne-
gotiates the respective service
contracts (incl. pricing). Se-
condly, a process management
function that is responsible for
Figure 1: Overview of
most relevant stake-
holders and processes
in service manage-
ment
Page 3
performance management,
service level adherence and
service costing. Thirdly, a finan-
ce & controlling function that
issues invoices and customer/
financial reports. Fourthly, ope-
rations that implements service
delivery and customer care. In
some cases even, a separate
product management function
might be reasonable in order
to strengthen the customer
focus in service portfolio ma-
nagement, however, in a cap-
The Outsourcing Journal “NEARSHORING EUROPE EDITION Q4/15” All rights reserved.
tive service provider setting
this might often be subsumed
under the responsibilities of
sales or process management.
Figure 1 provides an overview
of this generic set-up.
Although the specific set-up
might differ this illustrates the
level of dependencies that re-
quire attention to ensure an
end-to-end consistent and ef-
fective service management
approach.
 SHARED SERVICES MANAGEMENT

From our experience, a service organization needs to address the following 10 success factors in order
to effectively mitigate the risks arising from these dependencies (see Figure 2).

Figure 2: Overview of 10 success

factors in service management

1. Pragmatic service catalogue as single frame of reference for all stakeholders. This is the basis to
ensure consistency across all processes outlined in Figure 1. Nevertheless, defining a service cata-
logue means effort that needs to be tailored to organizational context. For example, for a captive
service provider both number of services and level of service specification should be limited to the
bare minimum. However, in case of a shared service center that also addresses external customers
and/or is competing with external providers this might be completely different in order to provide
the requested transparency as well as flexibility to adapt to individual customer needs.

The Outsourcing Journal “NEARSHORING EUROPE EDITION Q4/15” All rights reserved. Page 4
SHARED SERVICES MANAGEMENT
2. Service-type specific pric-
ing to set the right incentives
in demand management and
balance associated Controlling
efforts. For example, infrastruc-
ture services (singular in oc-
currence and homogenous in
specification) should be priced
as lump sums since the service
cost would usually not be able
to adapt to changes in the de-
mand structure easily. Transac-
tional pricing based on actual
volumes should be chosen for
mass services where the service
cost scales with the demand of
customers (see Figure 3 below).
Figure 3: Overview of service types and
implications for pricing
Page 5
In addition, the decision for
lump sum versus transaction-
al pricing should also consider
risk mitigation aspects. Where-
as lump sums might cause ad-
verse behavior on the custom-
er side, transactional pricing
sets clear incentives for thor-
ough demand management.
However, transaction pricing
implies additional controlling
efforts that need to be com-
pensated for. Therefore, it
makes sense to limit transac-
tional pricing to the most im-
portant services and charge
the remaining services in form
of a capitation fee. In general,
a capitation fee can be struc-
tured in 4 parts (see Figure 4 at
the next page).
Pricing logic
The Outsourcing Journal “NEARSHORING EUROPE EDITION Q4/15” All rights reserved.
Firstly, a provisioning fee for
(quasi) fix costs that incur for
setting up the service facilities.
Secondly, a base fee for ser-
vices with deterministic de-
mand (e.g., each employee re-
quires one payroll service per
month).
Thirdly, an insurance fee for
services that are beyond the
customers control and there-
fore do not lead to adverse be-
havior (e.g., a customer cannot
control the number of materni-
ty or parental leaves).
Fourthly, a flat fee for services
with a low risk profile due to in-
significant volumes or low mar-
ginal cost.
Volume logic

Figure 4: Client example for structuring a risk-optimized capitation fee (see 3rd paragraph previous
page)
3. Pragmatic production
model as a basis for perfor-
mance management and
costing. A production model
identifies which resources are
required to produce a service
and to what extent. This in-
cludes in particular document-
ing activity-based personnel
efforts as well as usage of IT
products. A production model
should be designed in a prag-
matic fashion, revealing the
key complexity and effort driv-
ers as a basis for costing.
For example, an invoice control
service gets complex in case
the automated matching be-
tween received and expected
invoice fails. A good produc-
tion model would identify the
ratio of failing vs. non-failing
invoice controls as well as the
The Outsourcing Journal “NEARSHORING EUROPE EDITION Q4/15” All rights reserved.
SHARED SERVICES MANAGEMENT
associated efforts for both vari-
ants. Dependent on the organi-
zational context, the complexi-
ty driver (failing vs. non-failing
in above example) can also be
applied in a differentiated pric-
ing approach to incentivize the
customers to control invoice
data quality.
4. Strict delineation of cost-
ing and pricing as a basis for
an effective steering logic with-
in the service organization.
Costing and pricing needs to
be consistent with the desired
profit and cost center structure
of an organization. If prices are
not assigned on service-level
exclusively this will dilute any
financial performance analysis.
The only exception is when you
cross the boundaries of the ser-
vice organization and source
pre-services from (indepen-
dent) internal or external ser-
vice providers.
5. Holistic performance man-
agement to integrate strategic
targets and customer concerns
in prioritization of process man-
agement efforts. Performance
management needs to look
beyond financial performance
alone and, therefore, should
be structured along at least 4
dimensions. Firstly, strategic
fit to evaluate services against
the target service model. Sec-
ondly, financial performance to
monitor volumes, cost as well
as contribution. Thirdly, service
level adherence to monitor
compliance with the contracts.
Fourthly, customer satisfaction
to include the perspective from
outside of the service or
Page 6
SHARED SERVICES MANAGEMENT
ganization (e.g. in form of NPS
or NVS scores). In combination
with ranking services by signifi-
cance this should be applied in
prioritizing the improvement ef-
forts of operational controlling,
performance management, and
operations.
6. Value-based service level
management to maximize ben-
efits end-to-end. Value-based
SLA management integrates the
perspectives of the customer and
of the service organization by
jointly evaluating the business
value against the implications
on service cost. This requires on
the service organization’s side
the outlining of incremental cost
/ savings for changes in service
levels and on the customer’s side
(e.g. for different levels of system
availability) evaluating the im-
pact on business value (e.g. from
financial implications of delays
in processing times). Ideally,
the retained organization plays
a connecting role in these dis-
cussions to ensure that business
and service organization meet at
eye level.
7. Centralized demand man-
agement to optimize service
delivery on corporate scale. This
is mostly a concern for inter-
nal service providers that see
themselves confronted with the
individual requirements of nu-
merous customers, which makes
Page 7 The Outsourcing Journal “NEARSHORING EUROPE EDITION Q4/15” All rights reserved.
it difficult for them to deliver
against their standardization
and harmonization mandate. In
many cases, product manage-
ment will not be empowered
sufficiently to force meaningful
changes into the organization
nor will it be close enough to the
business to consider or validate
potential business impact.
Therefore, it is useful to central-
ize demand management on the
business side (structured along
the main functions or process-
es) in order to drive discussions
towards a global (corporate)
not local (single customer) max-
imum. However, there is one
exception if the internal service
provider takes on responsibili-
ties that are a clear differentiat-
ing factor for their customers (in
form of a center of excellence).
In this case, it can be reasonable
to keep demand management
local.
8. Integrated time tracking
to ensure that this data can be
used to advance production
model and costing. The time
tracking structure for employees
should be consistent with the
production model of services
to provide the basis for plan vs.
as-is comparisons in specified
efforts per unit. Ideally, the time
tracking tool is directly integrat-
ed into the service management
solution hosting the produc

tion model so that costing is
adapted automatically. Alter-
natively, time spend analyses
need to be applied on a regular
basis to ensure that the cost-
ing logic is cause-fair and the
specified efforts constitute a
valid checks-and-balances for
resource planning.
9. Aggregated accounting
to not duplicate the invoic-
ing granularity in the ledgers.
Invoice control requires a de-
tailed listing of services con-
sumed with at least individual
prices and/or volumes. Howev-
er, this granularity should not
drive the accounting granular-
ity to the same level. Firstly, the
monitoring of a cost unit will
suffer from this high number of
usually unstructured line items.
Secondly, accounting is strict-
ly controlled so that in case of
errors the administrative effort
will increase with the number
The Outsourcing Journal “NEARSHORING EUROPE EDITION Q4/15” All rights reserved.
SHARED SERVICES MANAGEMENT
of lines affected. Therefore, ac-
counting should be conducted
on an aggregated level while
the invoice provides all the nec-
essary detailed information.
10. Lean contracting build-
ing on service profiles in the
service catalogue. The contract
scope should be reduced by
signing a frame contract – of-
ten already available on corpo-
rate level – (signed once) with
all general terms and limiting
the statement of work (signed
yearly) to only customer specif-
ic elements like what services
are ordered, in what quantity
and at which price. Service de-
scriptions, SLAs, and contact
information (which are usually
customer independent) should
be referenced, ideally, as an
online compendium of service
profiles. In case, customer spe-
cific deviations in service provi-
sioning need to be document-
Figure 5: Client example for lean contract structure
ed, this should be structured
as incremental addendum (see
Figure 5). Final tip: including a
service center mandate in the
frame contract will strengthen
the position of the service or-
ganization in driving standard-
ization and customer spanning
improvements.
While some of these issues are
either a question of the right
tool support or a conceptual
/ change management chal-
lenge, in most cases it is a com-
bination of both. However,
in the light of an iterative ap-
proach in advancing a service
management organization
both starting points are viable
as long as they are discussed in
the context of a clear roadmap
towards an agreed target state.
Page 8
SHARED SERVICES MANAGEMENT
Setting the right
priorities
In practice, service organiza-
tions usually show improve-
ment potential in at least some
of the 10 aspects discussed in
the previous chapter. However,
whether this improvement po-
tential is a priority depends on
the predominant issue in its ser-
vice management approach. In
the following, we introduce four
likely steps towards effective
service management and which
success factors to focus on (see
Figure 6).
Figure 6: Overview of the 4
steps and their respective
priorities
Page 9
Step 1: Setting the standards
to drive harmonization man-
date
Newly founded service organi-
zations as well as service orga-
nizations significantly extend-
ing its service scope often get
stuck when inheriting customer
specific service catalogues that
show different levels of granu-
larity and specification. Instead
of defining clear standard ser-
vices and setting clear incen-
tives in the pricing scheme for
reducing deviations, service
organizations avoid forcing
change on their customer orga-
nizations (esp. in the light of the
usual dips in service quality in
the first months after the transi-
The Outsourcing Journal “NEARSHORING EUROPE EDITION Q4/15” All rights reserved.
tion). This significantly impedes
the ability of the service orga-
nization to drive its harmoniza-
tion mandate.
The priority in this case is to
start with defining a pragmatic
service catalogue integrating all
the different service catalogues
into a customer independent
and well-structured service
portfolio that is linked to the
underlying process model. This
should be followed by defining
service-type specific pricing
that identifies additional cost
for deviations from the stan-
dard service offering as well as
focuses transactional pricing on
the most relevant services (usu-
ally 10-20% of the services

in the portfolio will cause 80%
of the cost in the service organi-
zation). This will result in a clear
roadmap for driving harmoniza-
tion and incentivizing demand
management across customers.
Chubak, Kaplan, Kelly (2011) out-
lines that this can yield in up to
5-10% cost savings by discussing
storage services in detail.
Step 2: Controlling for value
In the end the controlling func-
tion needs to ensure that ac-
counts reconcile. However, if this
mandate is viewed as the primary
goal instead of an essential con-
dition, this can lead to financial
reports that do not support val-
ue based management. Worst
case, product as well as process
management builds up a kind of
shadow accounting since con-
trolling does not provide what
is required. However, this is sub-
optimal from a center manage-
ment’s standpoint since it limits
its steering ability.
The priority in this case is to es-
tablish full cost transparency for
service delivery and build up a
pragmatic production model
to ensure costing is structured
cause-fairly along the most
relevant complexities and ef-
fort-drivers. In addition, a strict
delineation of costing and pric-
ing needs to be implemented
to provide meaningful financial
transparency that can drill-down
to service-level for identifying
The Outsourcing Journal “NEARSHORING EUROPE EDITION Q4/15” All rights reserved.
SHARED SERVICES MANAGEMENT
the root-causes in deviations
from plan. Typically this will help
reveal that 5-20% of all services
currently show a negative contri-
bution and provides the basis for
center management to set the
right incentives.
Step 3: Managing improve-
ments end-to-end
Process management often rath-
er acts as a SWAT team on call
than a strategic facility that ac-
tively shapes the target operating
model and drives the roadmap in
the form of a set of clearly prior-
itized measures. While there are
no objections to having a limited
amount of SWAT activities, these
usually stem from customer com-
plaints that are rather shortsight-
ed when it comes to prioritization
of scarce resources.
The priority in this case is estab-
lishing a holistic performance
management approach that pro-
vides transparency across stra-
tegic fit, financial performance,
service level adherence and cus-
tomer satisfaction. Customer sat-
isfaction will act as a counterbal-
ance to service level adherence,
which is usually reported green.
Although customer satisfaction
is an emotional dimension that
exaggerates negative aspects,
the service organization needs to
ensure that the spread to service
level adherence does not get too
big. This should also be the basis
to drive value-based SLA man
Page 10
SHARED SERVICES MANAGEMENT
agement jointly with customers
to ensure that business value on
the one hand as well as service
cost on the other are proportion-
ate. Ideally, these discussions are
facilitated by centralized demand
management, which ensures that
discussions target a global maxi-
mum on corporate level.
How powerful this is shows an
example of increasing availabil-
ity of IT applications, which had
been requested by business.
However, an end-to-end analy-
sis revealed that increasing the
ERP availability from 98 to 99%
would have caused 3 million EUR
in incremental service cost, while
the unavailability of the system
would only imply business cost
of around 150 thousand EUR.
Step 4: Prevent media breaks
to manage consistency
Media breaks are causing several
issues and usually require extra
efforts for ensuring consisten-
cy. This usually becomes most
apparent during the budgeting
process that can paralyze an en-
tire service organization for sev-
eral months. This means ensuring
that the ERP systems are in sync
with the budgeting information
distributed/discussed with the
customer, aligning contracts with
the most current version of the
service catalogue (or corporate
policies), and updating costing
parameters in line with insights
from performance management.
Page 11 The Outsourcing Journal “NEARSHORING EUROPE EDITION Q4/15” All rights reserved.
The priority in this case on the one
hand is to introduce decoupling
concepts like lean contracting or
aggregated accounting that will
help to reduce dependencies to a
minimum. On the other hand ap-
propriate tool support should be
considered that supports service
management end-to-end and
will provide the basis for integrat-
ed time tracking for up-to-date
costing parameters as well as au-
tomation potential of the points
mentioned before.
Choosing an adequate service
management tool that supports
processes end-to-end (opposed
to standard ERP functionality)
can free up approximately 2 FTE
per year by reducing manual ef-
forts in reporting, cost allocation,
billing, production model main-
tenance, budgeting, and data
uploads.
While these cases are not com-
prehensive, they demonstrate
that usually only a fraction of the
10 success factors is relevant at a
time. Nevertheless, a fraction will
be enough for making significant
progress. In many cases, this jour-
ney also provides the potential to
involve the customer organiza-
tions.
At the end, they benefit in the
same way and are supportive
even at the expense of certain
changes to processes and behav-
ior that they have come to love.

The authors: Dr. Daniel Stock ist
seit 2014 Senior Manager bei der
Strategic Service Consulting. Der
Wirtschaftsingenieur stieg 2006 nach
seinem Studium an der Universität
Karlsruhe in der Top-Management Be-
ratung McKinsey & Company ein. Dort
arbeitete er als Teil des Business Tech-
nology Office (BTO) vorwiegend an
der Strukturierung und Unterstützung
von Business und IT-Transformationen
für international agierende Unterneh-
men. Im Rahmen einer Freistellung
hat er am Institut für Wirtschaftsinfor-
matik der Universität St. Gallen im The-
menkomplex Unternehmenssteuer-
ungssysteme promoviert. > Email
Dr. Florian Meister ist seit 2012 Ges-
chäftsführer der Strategic Service Con-
sulting GmbH. Der Wirtschaftsinfor-
matiker hat während seines Studiums
an der Westfälischen Wilhelms-Univer-
sität Münster zunächst u. a. bei IBM und
Steria Mummert Consulting intensive
Erfahrungen mit Software-Entwick-
lung für internationale Unternehmen
gesammelt. Nach Abschluss des Studi-
ums stieg Meister 2001 bei der Strate-
gie-Beratung Corporate Transforma-
tion Group (CTG) ein. 2007 wechselte
er zur Top-Management-Beratung A.T.
Kearney, bei der er als Mitglied der er-
weiterten Geschäftsführung Großpro-
The Outsourcing Journal “NEARSHORING EUROPE EDITION Q4/15” All rights reserved.
SHARED SERVICES MANAGEMENT
jekte an der Schnittstelle zwischen IT
und Business verantwortete. > Email
Dr. Alexander Becker verantwortet
als Geschäftsführer in der Unterneh-
mensgruppe PMCS.helpLine die Ge-
samtstrategie sowie die Integration
von in- und ausländischen Tochter-
unternehmen. Er studierte in Karl-
sruhe Wirtschaftsingenieurwesen mit
Schwerpunkt Informatik und promov-
ierte in Darmstadt über Wirtschaft-
lichkeitsfragen von IT-Architekturen.
Dr. Becker verfügt aufgrund seiner
früheren Tätigkeit als Projektleiter im
Business Technology Office von McK-
insey & Company über langjährige Er-
fahrung in der Top-Management-Ber-
atung. > Email
Burkhard Franz ist seit 2001 bei
Lufthansa in verschiedenen Posi-
tionen tätig und leitet seit Anfang 2014
die Abteilung Service Management
bei Lufthansa Global Business Ser-
vices GmbH. Nach dem Studium der
Außenwirtschaft an der FH-Reutlin-
gen und einem anschließenden MBA
an der SLU in Louisiana USA, ist er als
IT-Berater bei der Lufthansa Systems
in Hamburg eingestiegen. Nach meh-
rjähriger Tätigkeit in internationalen
IT-Projekten hat er die Produkt- und
Vertriebsleitung für eine SAP-Software
zur Erlöse- und Leistungsabrechnung
übernommen. Später wechselte er zur
Lufthansa Revenue Services GmbH,
um dort den Bereich Business Devel-
opment aufzubauen und shared-ser-
vicefähige Prozessleistungen im Um-
feld der Erlös- und Leistungsrechnung
für die Lufthansa Gruppe zu etablie-
ren. > Email
Page 12
 THIS PAPER WAS PUBLISHED
FIRST IN THE OUTSOURCING
JOURNAL
SPECIAL EDITION “NEARSHORING
EUROPE” Q4/15,

download the edition (pdf, 150

pages) free at
www.outsourcing-verband.org
Strategic Service Consulting GmbH
Ein Unternehmen der PMCS.helpLine Software Gruppe
Potsdamer Platz 9
10117 Berlin
Telefon: +49 (0) 30 20607389-0
E-Mail: kontakt@strategic-sc.de

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Carl-Zeiss-Straße 16
65520 Bad Camberg
Tel.: +49 (0) 6434 94 50-0
E-Mail: kontakt@pmcs-helpline.de